Get nanny out of the nursery

The TUC today published a report revealing that childcare costs in England have increased up to seven times faster than wages since 2008. According to the report, childcare costs for parents with a one-year-old have increased dramatically by 48 per cent over a period when their wages have fallen in real terms. As their general secretary, Frances O’Grady pointed out: ‘The cost of childcare is spiralling but wages aren’t keeping pace. Parents are spending more and more of their salaries on childcare’.

The TUC is correct. As our recent report on the cost of living in the UK, childcare is extremely expensive in the UK compared to other developed countries. The average household which uses childcare spends 33.8 per cent of their income on it, much higher than the OECD average of 13 per cent and the German average of 9.7 per cent. The contrast is even starker when compared to Spain where families which use childcare spend on average 5.6 per cent of their income on it and Sweden where the average household which uses childcare spends 4.4 per cent of their income on it.

The high cost of childcare also has an impact on the employment prospect of parents. For example, a British Chambers of Commerce survey found that 9 per cent of business leaders have had an employee leave their job due to childcare costs. The survey also found that 28 per cent of business leaders have had employees reduce their working hours as a result of the high cost of childcare. This not only impacts the ability of households to earn extra money and so improve their living standards, but it also has a negative impact on the economy.

Although the TUC is correct to point out how unaffordable childcare is in this country, they are wrong about the solution. O’Grady argued that: ‘Parents need subsidised, affordable childcare from as soon as maternity leave finishes to enable them to continue working, and so mums don’t continue to have to make that choice between having a family and a career’.

O’Grady is wrong. British taxpayers heavily subsidise childcare with billions of pounds being spent every year. Despite huge subsidies, childcare costs have continued to rise. This is because subsidies from taxpayers do nothing to address the underlying market price of childcare.

As our new paper on why the cost of living is so expensive explains, childcare is expensive in the UK is due to overregulation. By international standards, the UK imposes very restrictive staff to child ratios - there can only be three children aged under one per staff member. This is the same as for the Republic of Ireland, but is very high by western European standards. Moreover, for children aged one, the UK has a higher ratio than the Republic of Ireland. Again, the ratio is very high by international standards.

During the coalition government of 2010-2015, there was talk of relaxing the child to staff ratios in order to help save parents money.

During her time as childcare minister, Liz Truss highlighted the fact that restrictive child to staff ratios were contributing to high childcare costs. As a result, she proposed relaxing the ratios. These plans were blocked by the then Deputy Prime Minister Nick Clegg, who incorrectly stated that such reforms would not lower costs for parents.

There are also heavy-handed regulations regarding the level of training and qualifications which staff must possess. Again, the UK has very high standards compared to other developed countries. In the UK, staff in formal childcare settings require an NVQ Level 2, as do registered childminders. Supervisors require a higher level NVQ. Many other advanced economies allow a far greater degree of latitude in this regard.

This is not complicated and there is extensive academic literature showing how regulation drives up childcare costs. For example, Thomas & Gorry examined childcare in a US context, and concluded that increasing the staff to child ratio by one child across all age groups can reduce fees by between nine and 20 per cent. Their research revealed that requiring teachers to have a high school diploma results in an increase in childcare costs of between 22 and 46 per cent. It’s a shame Mr Clegg didn’t bother to look at the facts before blocking reforms that could save families thousands of pounds a year.

The TUC’s proposals (pile costs onto taxpayers) are as wrong-headed as they are unsurprising. More government intervention in childcare is not the solution.